The Rise of E-Business in Global Auto-Industry

Electronic linkages to support in global chains are typically implemented in auto-industry using Electronic Data Interchange (EDI), which provides a standardized format and structure for business documents in electronic form. While this standardization of the electronic documents provides some independence and generality among the auto-industry trading partners, the actual implementations, nonetheless, tend to involve a high amount of relationship specific investment (Lee, 2000). For the auto-industry where change is more dynamic, such relationship specific investments can become a hindrance to change. One of the most complex challenges for global auto-industry is in the area of global supply chains. In these cases, trading relationships are not only with other companies, who have similar competitive pressures, but also with a variety of governmental agencies involved in the regulation of import and export. The other challenges in this industry are customer-centric interactions. The Web offers unparalleled opportunities for customer-centric interaction in auto-industry, from data-mining behavioral information to using 'infomediaries,' incentives, and loyalty programs to provide and support mass customization (Raisinghani, 2000). According to a study of 250 Fortune 500 web sites by Palmer and Griffith (1998), marketing activities and strategies of corporations have been greatly affected by the internet. The internet has created a new marketing environment and a new distribution channel that enable organizations to establish a closer relationship with their customers. Global auto-industry is no exception.

Many authors (Cunningham and Tynan, 1993; Dearing, 1990; Johnston, 1998; Rochester, 1989) recognize that the significance of business-to-business electronic commerce in the supply chain is not just its ability to reduce direct operational costs (Colberg, 1990; Dearing, 1990), but also as an enabling technology for business process simplification (Johnston, 2000). At present, the main value of e-business in global auto industry comes from removing inefficiencies along the entire value chain and increasing direct customer communication. It facilitates:

• Improved forecasting of demand and market trends

• Fully integrated enterprise resource planning

• Possibility to integrate downstream industries

• Reduced inventory, cost and time

• Integrated customer relationship management

Many business analysts estimate substantial savings through e-business application in automotive industry. Savings per car derived from e-business applications in the US can add up to more than 10 percent of an average vehicle retail price. The savings mainly come from back end supply chain and direct online sales. Another five percent lies ahead in the built-to-order production which through flexible production planning offers a compromise between the differing needs of the sales and production functions. Built-to-order production is expected to cut excess production costs as well as lionizing customer demand by delivering timely, cost-effective products.

Funk (2001) provides an overview of the innovations the auto-industry has implemented thus far and will need to implement in response to the rise of e-business. He illustrates how these innovations change the automotive value chain in four different levels. At the first level, for car manufacturers to reach online customers, they must innovate in marketing. Manufacturers and independent parties initially created Web pages using multiple-choice options and 3-D virtual showroom technologies that enabled potential car buyers to configure their cars before entering the physical showroom. At the same time, manufacturers used advanced data mining techniques to identify which customer type is interested in which equipment features of the car. The second step in innovation is provided by the aforementioned online referral services for dealers. These innovative e-business models threaten to relegate traditional dealerships to mere pickup points for car buyers. In the third step of the innovation process, manufacturers have set up their own online services, planning and production can be optimized so that a new product can evolve. This development could conceivably branch off in a totally new direction, such as an Internet-equipped and information technology-stuffed vehicle - the PC on wheels. Finally, the sector arrives at the fourth level of innovation, where the entire business model can shift. Car manufacturers transform from product manufacturers to integrated service providers. The vehicle remains at the core of the offering, but it is surrounded by additional services such as mobility concepts and wireless internet access.

The above trend will also have tremendous impact on the value chain. E-business provides the efficient and timesaving tools to speed information from consumers to manufacturers and suppliers. The business-to-consumer interface is improved through the marketing innovations of car configurators or one-stop shopping opportunities that include financing, insurance, and extended warranty. The business-to-business interfaces between the manufacturer and first-tier suppliers of modules or systems, as well as suppliers on the following tiers, are organized through electronic marketplaces. Two mutually connected extranets will reduce coordination and modification costs and realize the targeted order-to-delivery time span (Funk, 2001).

In North America and Europe, there are already many examples of e-activities in key business areas of automotive industry; e.g., collaborative engineering, electronic marketplaces, improved supply chain and distribution. In this regard, e-business is going to reshape the competitive landscape of auto industry in these areas, the companies that transform their businesses most aggressively to use e-business and influence their evolution, stand to gain the most. Sellers can use the new markets to change competitive dynamics more than they realize. And as buyers are beginning to recognize, e-marketplaces represent more than a means of exacting lower prices from suppliers. Over time, many of the benefits gathered by e-business will flow to the end customer. This means that early movers that can overcome the implementation challenges will have the greatest opportunity to capture and retain most of the benefits.